We had a nice trend so far, this year. The stock market has been
moving forward in small, steady gains. Volatility has been low, almost
imperceptible. The markets just kept moving higher. When we have had a
pullback, it was followed the next day by a rally, even if there was no
conviction.

That was the case this week. Down on Tuesday, back up on
Wednesday. Today throws a wrench in the pattern, with the S&P 500
and the Dow industrials suffering their worst daily percentage drops in
about six weeks. The tech sector was the worst performing group today.
There’s a lot more volatility in tech this month and that’s in part due
to stretched P/Es.

At this point, it’s just a couple of down days, and
we are heading into a long holiday weekend, a good time to take profits
off the table and enjoy a barbeque without worries. Still, valuations
are high and it’s one of the longest bull markets in history. Bull
markets don’t last forever.

June has not been kind to the FAANG stocks, –
Facebook, Apple, Amazon, Netflix, and Google, which were market leaders
and then hit a down draft. There is no question the FAANGs have become
pricey. The market caps are so huge they dominate the indexes. But
markets can stay exuberant and irrational for a very long time. And this
is not the first time we have seen a sell-off in the FAANGs, only to
watch them move higher.

Today, money was rotating from tech and into the financials after the big banks
passed the Fed stress tests and now can offer bigger dividends and
buybacks. JPMorgan, the nation’s largest lender, said it’s boosting its
quarterly dividend 12 percent and may increase share repurchases to
$19.4 billion over the next 12 months — roughly 90 percent more than in
the prior year.

Citigroup plans to double its dividend and may purchase
up to $15.6 billion. Bank of America hiked its dividend 60 percent and
will buy back up to $12 billion. Shares of all three rose at least 2
percent in early trading in New York. They, along with Wells
Fargo and Morgan Stanley, may collectively buy as much as $64 billion in
stock. Goldman Sachs has yet to make an announcement.

The Commerce Department posted its third and sort of final revision to first quarter Gross Domestic Product,
and the revision came in higher; up 0.2% to 1.4%, instead of the 1.2%
reported last month. The government had pegged first-quarter growth at a
paltry 0.7% in its first estimate in April.

First-quarter economic
growth was boosted by an upward revision to consumer spending, which
accounts for more than two-thirds of U.S. economic activity. Consumer
spending rose at a 1.1 percent pace, the weakest reading since the
second quarter of 2013 but almost double the 0.6 percent reported last
month. A sustained average growth rate of 3 percent has not been
achieved in the United States since the 1990s.

The U.S. economy has
grown an average 2 percent since 2000 and it expanded only 1.6 percent
in 2016, which was the weakest growth in five years. Initial signs that
economic growth re-accelerated sharply in the second quarter have also
faltered in the face of recent disappointing data on retail sales,
manufacturing production and inflation. Housing data has also been
mixed.

Exports for the period were revised to show a 7.0 percent rate of
growth from the previously reported 5.8 percent. Exports in the fourth
quarter fell at a rate of 4.5 percent. Business spending on equipment
was revised to show it increasing at a rate of 7.8 percent in the
January-March period rather than the 7.2 percent previously estimated.

The government also reported that corporate profits after tax with
inventory valuation and capital consumption adjustments fell at an
annual rate of 2.7 percent in the first quarter after rising at a 2.3
percent pace in the prior three months.

The Bank of International Settlements,
or BIS, is the central bank for the central bankers of the world.
According the BIS’s annual report, the global economy faces four risks,
“(i) financial cycle risks for financial stability; (ii) risks to
consumption growth from household debt; (iii) risks to investment from
weak productivity growth and high corporate debt; and (iv) risks from
rising protectionism.”

From the report:
“These risks may appear independent, but they are not. For instance,
policy tightening to contain an inflation spurt could trigger, or
amplify, a financial bust in the more vulnerable countries… Indeed, an
overarching issue is the global economy’s sensitivity to higher interest
rates given the continued accumulation of debt in relation to GDP,
complicating the policy normalization process.

“As another example, a withdrawal into trade protectionism could
spark financial strains and make higher inflation more likely. And the
emergence of systemic financial strains yet again, or simply much slower
growth, could heighten the protectionist threat beyond critical
levels.”

Of all those risks, protectionism is the only one a government can
fully control. A government can choose to engage in global free market
capitalism, or it can aggressively try to distort the market by blocking
competing goods and services. It can either work amicably with
neighbors and allies, or it can create tension felt across the globe.

A revised version of President Trump’s travel ban
approved by the Supreme Court is set to take effect at 8:00 p.m. ET on
Thursday. The justices implemented an exemption for travelers from
six-Muslim majority countries with a “bona fide relationship” to people
or entities in the US.

The Trump administration has adopted a narrow
definition of “bona fide relationship.” According to guidelines the Trump administration has
sent to US embassies and consulates, only a family member who is a
parent, spouse, child, adult son or daughter, son-in-law,
daughter-in-law, or sibling of US residents will be allowed to enter the
country.

Fiancées, grandparents, grandchildren, aunts, uncles, nieces,
nephews, cousins, and other extended family members are not considered
to have “close familial ties”. And if you think this might lead to mass
confusion, well…

The Congressional Budget Office
has come out with a long-term analysis of Senate Republicans’
health-care legislation found that the bill would slash spending on
Medicaid by about 35 percent over the next 20 years. The analysis
follows a 10-year look by the agency released earlier this week.

The new
CBO estimate doesn’t include a projection of how many people would be
covered under the Republican bill. The CBO estimate shows that states
would be forced to make trade-offs in how to allocate their far more
limited funds.

Drugstore chain Walgreens
Boots Alliance scrapped its deal to buy Rite Aid after failing to win
antitrust approval, but said it would instead buy nearly half of the
smaller rival’s U.S. stores for $5.18 billion. Rite Aid’s shares plunged
about 28 percent to $2.85, while Walgreens shares were up 1 percent at
$77.97.

Walgreens also ended a related deal to sell as many as 1,200
Rite Aid stores to Fred’s, sending Fred’s shares down 19 percent.
Walgreens’ plan to buy 2,186 Rite Aid stores accomplishes many of the
same goals as the merger – including eliminating Rite Aid as a rival –
but does so in a way that makes it harder for the FTC to take the
companies to court to stop the transaction.

The FTC will review the new
deal. Walgreens also reported better-than-expected profit and sales for
the third quarter, helped by a rise in prescription volumes in its U.S.
pharmacy business. The company also authorized a $5 billion buyback
program and raised the lower end of its full-year profit forecast.

Nike
reported quarterly revenue and profit that topped Street estimates as
the company kept a lid on costs and saw greater demand in Western
Europe, China and emerging markets. Shares of the Dow component were up
nearly 3 percent.

Britain intends to subject Rupert Murdoch’s
takeover of European pay-TV group Sky to a lengthy in-depth
investigation after finding that Twenty-First Century Fox’s $15 billion
deal risks giving the media mogul too much power over the news agenda.

The proposed entity would have the third largest total reach of any news
provider – lower only than the BBC and ITN – and would, uniquely, span
news coverage on television, radio, in newspapers and online. Regulators
will make a final decision on July 14, giving Fox two weeks to address
concerns.

Blue Apron shares debuted today. The IPO stumbled but did not fall. Blue Apron’s
30-million share offering was priced at $10 per share late on Wednesday,
after the company slashed its valuation expectations by a third. Shares
gained 1% in the first day of trading.

Blue Apron spent roughly 18
percent of its $795 million revenue in 2016 on marketing, posting a net
loss of $54 million. It has also faced steep costs of building out
delivery infrastructure for fresh food. The biggest problem for Blue
Apron might be Amazon-Whole Foods, which looks well-positioned to offer
competition.

This should be a very interesting Fourth of July celebration in Las Vegas. Recreational marijuana
becomes legal to buy Saturday in Nevada. That doesn’t mean it can be
smoked everywhere only in private homes, yards or porches.

It’s
prohibited in casinos, bars, restaurants, parks, concerts and on any
federal property. You can’t walk down the street, or the Strip, smoking a
joint. Also, prohibited in all forms at airports. No driving while
stoned. And what’s smoked in Vegas stays in Vegas.

Disclaimer: The material appearing on this site is based on data and information from sources we believe to be accurate and reliable. However, the material is not guaranteed as to accuracy nor does it purport to be complete. Opinions and projections, both our own and those of others, reflect views as of dates indicated and are subject to change without notice. The contributions and opinions of others do not necessarily reflect the views of Marvin Clark, Monsoon Wealth Management, or Fixed Income Daily. Nothing appearing on this site should be considered a recommendation to buy or to sell any security or related financial instrument. Investors should discuss any investment with their personal investment counsel. Past performance does not guarantee future results.